This story was produced as part of the Colorado Capitol News Alliance. It first appeared at cpr.org.
Colorado lawmakers have to cut $1.5 billion in spending to balance the state budget for the next fiscal year. The latest economic forecast released Thursday by nonpartisan legislative staff showed that the budget shortfall was worse than anticipated, $500 million higher than earlier projections.
The state is facing ballooning costs for programs like Medicaid, which has expanded by billions of dollars over the past couple of years. Those growing costs are compounded by lower-than-expected state revenue. Legislative staffers attribute the headwinds to a weakening labor market and the tax cuts in the Trump Administration’s One Big Beautiful Bill Act, or HR-1, since Colorado’s income taxes are tied to federal tax policy.
Staffers from the Legislative Council (LCS) and the governor’s Office of State Planning and Budgeting (OSPB) presented competing economic forecasts to Colorado’s Joint Budget Committee on Thursday. Though the OSPB expects the state will take in higher revenue than the LCS, with most of the discrepancy coming from differing expectations for tax filings.
On Friday, committee members opted to use the slightly rosier OSPB outlook. But both forecasts leave lawmakers with tough decisions about cutting essential programs to balance the budget.
“We are in a hell of a predicament,” said Rep. Emily Sirota of Denver. There are no good choices here.”
Legislative Council Staff chief economist Greg Sabetsky told the Joint Budget Committee that the economic forecast is particularly fluid at this time, contingent on unknowns from the fallout on energy prices from the war in Iran, on-again/off-again tariffs and the still-uncertain impact of artificial intelligence on business and employment.
Staffers admitted they did not have a lot of confidence in their forecast because of those developing global situations, and because the March forecast comes out partway through tax filing season. Individual income tax makes up 60% of all state revenue and they don’t yet know how HR-1 will affect what taxpayers end up owing this year.
“We have huge amounts of current year uncertainty in our forecast,” Sabetsky told the committee. “The most significant driver of uncertainty in our forecast is how we are accommodating adjustments to our revenue expectations for the One Big Beautiful Bill Act.”
Meanwhile, Republicans on the Joint Budget Committee point to Democratic overspending as the culprit for the massive deficit.
“HR-1 isn't a factor,” said Republican Senator Barbara Kirkmeyer of Weld County. “The factor is they continue to spend.”
The latest forecast shows that Colorado’s budget remains under significant strain due to ongoing structural deficits over the past seven years,” said Senate Minority Leader Cleave Simpson in a statement. “Democrats have dramatically increased government spending while ignoring clear signs that our economy is slowing. This fiscal irresponsibility is a risky strategy that puts taxpayers on the hook.”
Whatever the cause of the shortfall, the Joint Budget Committee has already spent weeks looking for significant reductions in state spending, and members proposed difficult cuts to Medicaid spending. But the most recent budget analysis suggests those cuts won’t be enough to fill the shortfall.
Even with those cuts, state appropriations are up 3.1%.
Four state departments make up the bulk of the state’s ballooning costs, according to Joint Budget Committee staff. Without further action by lawmakers, between the current fiscal year and the one ending in July 2027, the Healthcare Financing and Policy Department budget, which is largely driven by Medicaid, will balloon by $300 million. Department of Corrections spending will increase by $90 million. Judicial and Education spending are also on track to increase by $50 million and $39 million, respectively.
Democratic lawmakers called the forecast devastating.
The economic forecasts included some modestly encouraging details. The economy continues to grow, staffers said, albeit slowly and largely driven by healthcare spending.
But there are also troubling signs — a weak labor market with discouraged job-seekers leaving the workforce, lower household savings and credit card delinquencies creeping up to levels not seen in 15 years. The OSPB put the likelihood of recession within the next 12 months at 40%.
